CRH forced to sell stake in venture for €570m

A TRIBUNAL has ordered building materials giant CRH to sell its stake in a Portuguese business for €570 million, ending a two-year row between the Irish company and its joint venture partner, Semapa.

CRH and Portuguese group Semapa ended up in dispute over the future of their joint cement manufacturing venture, Secil, in October 2009.

Semapa claimed the row triggered a clause in the joint venture deal that gave it the right to buy out CRH, but the Irish company claimed the matter should go to arbitration before the International Chamber of Commerce in Paris.

The Paris body ruled yesterday both parties breached terms of the agreement at various times, but held that Semapa did have the right to buy out CRH.

The deal’s terms mean that Semapa has to pay nine times earnings to buy CRH’s 49 per cent stake in Secil, valuing it at €574 million. This has to be completed within 180 business days.

CRH originally paid €329 million for the stake and took on a €100 million share of its net debt when the deal was completed in 2004, bringing the total cost to €429 million.

Analysts yesterday acknowledged the ruling was a defeat for the Irish group.

However, they pointed out that there was an upside in that CRH was being bought out of a construction-related business in a peripheral EU country at a good price.

Barry Dixon of Dublin broker Davy said that being bought out of a cement business operating in a market where the construction sector is likely to be depressed for some time to come was “of considerable comfort”.

He added the sale would considerably strengthen CRH’s balance sheet and give it the scope to replace the Secil business.

Semapa owns 46.97 per cent of Secil and the outstanding shares are held in the joint venture. Secil manufactures cement and ready-mixed concrete in Portugal, and has businesses in Tunisia, Lebanon and Angola.

In its ruling, the tribunal held that CRH had broken the terms of its agreement with Semapa on three occasions, while Semapa had breached the agreement once.

It ruled that Semapa’s breach was not enough to undermine its right to exercise the option to buy out CRH.

The fundamental cause of the dispute was a disagreement over the strategy for Secil. Sources yesterday suggested that Semapa’s approach to developing the business was more aggressive than CRH’s.

Semapa has interests ranging across a number of industries and is listed on Portugal’s stock exchange. It is one of the biggest companies in the country.

CRH has operations in Ireland, Europe and the US and is the biggest company on the Irish Stock Exchange.